By: 26 April 2016
Diminution in value claims: Knowing the one head of loss rule

A dearth of Court of Appeal decisions in this area, coupled with a growth in diminution claim numbers, has led to a number of commonly held, but ultimately misconceived, views developing over diminution in value claims. Glyn Thompson looks at how to deal with them

Diminution – the extent to which a chattel suffers a reduction in value as a result of damage – has existed as a legitimate head of compensation for more than 125 years (see The Endeavour [1890] 6 Asp MC 511).

It is established law, for instance, that the loss arises immediately upon the damage occurring and irrespective of whether the damage is ever repaired. It seems surprising, therefore, that by the time Coles v Hetherton [2012] EWHC 1599 (Comm) got to the High Court people were still posing questions like – are diminution and repair the same thing?

Mr Justice Cooke answered that question unequivocally: there is no such thing as a claim for repairs and a claim for diminution, there is only diminution. Understanding what repair costs are (via estimates etc) serves only to give a marker for assessing what the reduction in value actually is.

When Coles v Hetherton got to the Court of Appeal Aikens LJ reaffirmed that using repairs as a point of reference is a practice that courts “should continue to follow” but that was it. There was no extension or expansion of diminution into two distinct heads of loss. Aikens LJ remarked that the reasonable cost of repairs “may not always represent the full amount of the diminution” because, alluding to Payton v Brooks [1974] 1 Lloyd’s Rep 241, some residual reduction in value may persist but he went no further.

If there was any doubt beforehand, the principle of ‘one head of loss’ was set solidly into law from Coles onwards and those faced with claims for repairs and diminution should look to bind them up as one and conclude such a single claim on a full and final basis.

Guidance from case law

Whilst the firmly established principles of diminution were forged out of Admiralty case law, Payton was the first and last Court of Appeal case (Coles aside) to look at diminution solely in relation to motor vehicle value reduction.

Practice Direction (Citation of Authorities) [2001] 1 W.L.R 1002 CA, dictates that county court decisions may not be cited in any court – so are of no use – unless they purport to (a) establish a new principle of law, or (b) extend the law as it existed before that decision.

However, decisions of District Judges are not binding upon their equivalents, so any new principles of law purportedly established with any given District Judge’s decision will not be binding. And what value is an unbinding principle?

The Practice Direction also makes clear that where there is no better authority than a county court decision, the decision cited serves only to demonstrate judicial thinking on the issue at hand.

So fear not the five page letter quoting county court case after county court case, and remember that Payton provides the most guidance of all. Frequently cited county court decisions do no more than show what the court could decide, not what it will.

The real art in responding to a diminution claim is knowing the one head of loss rule and ensuring that the correct evidence goes before the Court.

A false faith in or fear of county court decisions might lull you into arriving at the litigation process ill prepared, over confident or both.

Glyn Thompson (pictured) is a technical controller in the motor team at Weightmans